Page 75 - EVRY Annual Report 2012

Annual Accounts Group 75
Goodwill
Excess value that cannot be attributed to identifiable assets and liabilities in subsidiaries at the date of acquisition is
recognised as goodwill in the statement of financial position. Goodwill acquired in a business combination represents
a payment made by the acquirer in anticipation of future economic benefits from assets that are not capable of being
individually identified and separately recognised. In the case of investment in associated companies, goodwill is included
in the cost price of the investment.
Goodwill that arises as a result of a business combination is not amortised. Goodwill does not generate cash flows in-
dependently of other assets or groups of assets, and is assigned to the cash generating units that are expected to benefit
from the synergy effects of the business combination that gave rise to the goodwill. Upon disposal of a business, the busi-
nesses proportion of goodwill based on fair value is taken into account in calculating the gain or loss on disposal.
Intangible assets
Intangible assets with limited life are amortised over their useful life. Depreciation based on cash flow is applied to most
intangible assets. The length of useful life remaining and the method of depreciation are subject to annual review that
takes into account the commercial reality of the intangible asset in question. Intangible assets are tested for impairment
if there are indications of a material fall in value. The group does not have any intangible assets with unlimited life.
Research and development
Expenses relating to research are recognised in the income statement when they are accrued. Expenses relating to devel-
opment are capitalised if the following criteria are met in full:
- the product or process is clearly defined and its cost elements can be identified and measured reliably
- the technical solution for the product has been demonstrated
- the product or process will be sold or used in the company’s operations
- the asset will generate future economic benefit; and
- sufficient technical, financial and other resources for completing the project are present.
When all the above criteria are met, the costs relating to development are capitalised. Costs that have been charged as
expenses in previous accounting periods are not capitalised.
The evaluation of future commercial benefit is based on the expected license revenue and/or reduction in operating costs
that will be achieved by carrying out the project. When calculating the profitability of a project, the estimated future
cash flows associated with the project are discounted to present value using a rate of return adjusted for the risk associ-
ated with the project in question.
Capitalised development costs are amortised in accordance with the expected cash flow from the project in question. The
amortisation period used is 1–4 years.
Tangible assets
Tangible operating assets are carried in the statement of financial condition at historic purchase price less accumulated
ordinary depreciation and write-down. When tangible operational assets cease to be used, the historic purchase price
and accumulated depreciation are removed from the accounts, and any gain or loss this causes is recognised to profit and
loss. Depreciation is applied on a straight-line basis, after allowing for disposal value, over the following time periods:
Leasehold improvements 5-10 years
Machinery/equipment/fixtures 3–7 years
Vehicles 5 years
IT equipment 3–5 years
The economic life and depreciationmethod used are reviewed regularly to ensure that the method and depreciation
period reflect the expected useful life of the assets in question. This also applies to disposal value. The depreciation period
for leasehold improvements will at a maximum be the remaining lease period.
Impairment of non-financial assets
At each reporting date the group evaluates if there are identified indications that fixed assets or intangible assets may be
impaired. If there are such indications, the recoverable amount of the assets is estimated in order to determine the extent
of the impairment loss. Recoverable amount is defined as the higher of value in use and net sales value. Value in use is cal-
culated as net present value of future cash flow from continuing use, including cash flow arising from eventual disposal.
A calculatedWACC is applied as the discount rate used to calculate present value. Net sales value is calculated as the
amount that an entity expects to obtain from the disposal of an asset in an arm’s length transaction between knowledge-
able, willing parties, after deducting the estimated costs of disposal.